The effect of digitomation on consumers: We the buyers
Curved supply vs. flat demand
Below appears a conventional circular-flow diagram (Figure 4.1) that can be found in most of the macroeconomics textbooks.1 According to this diagram, among the many identities that human beings possess, the two most relevant are that of the producer (firms or businesses) and the consumer (households).
The producer identity basically consists of our work lives where, in the labor market (markets for factors of production), we sell our time in the form of physical and intellectual labor to earn money. In our consumer identities, with the income earned by selling our labor, we buy from the “Markets for Goods & Services” and subsequently consume those.
The modern age of automation has dramatically changed the role of workers in the production process. With technology spreading its over-arching wings across the productive economy, we see a gradual decline in the importance of low- skilled workers. High-skilled workers working in conjunction with modern technologies have rapidly dislocated the less-qualified workforce from the ecosystem of productive economy. With people’s productive identity becoming siloed based on their skill possession, the surge of information technology and data flow across continents has enabled connectivity among individuals at a spectacular rate. The unprecedented speed and span of this form of connectivity have a significant impact on people’s consumption choices.2
In the previous era, when consumer markets were more segmented in terms of consumer choices (analog vs. smartphone, scissors vs. clipper haircut,3 non- branded vs. branded restaurants, etc.) and consumption was closely related with social status distinctions,4 organizations were able to use a mix of labor and capital-intensive technologies in their respective production processes.'’ The segmented market allowed firms to specialize in consumer products, which varied in the quality' and cost spectrum. While higher-end consumer products required advanced technologies, lower-scale products were manufactured using less sophisticated and labor-intensive methods. Before the overwhelming presence of technology in virtually all domains of the market, there existed consumers with varying consumption demands that were commensurate to their earning capabilities.6 But with the rapid growth of information technology, today’s consumers
Figure 4.1 The circular-flow diagram.
across continents aspire for the same high-quality consumption experiences at the lowest possible prices, thus encouraging businesses to adopt technology-intensive production structures.
A close look at the “retail apocalypse” that started in 2015 and has been continuing ever since, a common theme emerges. A CB Insights research mentions that
modern-day retail is at an inflection point as retailers face struggling physical storefronts, massive debt, and inefficient operations, among other issues. ... With the shift to e-commerce, fewer and fewer customers are shopping at big-box physical retailers and malls. Additionally, many of these physical retailers have lost the cache they once had as new direct-to-consumer brands with a hyper-focus on specific products have taken off. Many big-box retailers either failed or were too late to establish an online presence. With the rise of Amazon and digitally native direct-to-consumer brands, retailers that don’t adapt quickly enough inevitably fail to compete.7-8
The accelerated expansion of computational technologies progressively enabled businesses to digitize and automate parts of the production process, thus allowing them to lay off workers. The most impacted workers were those whose skills were not suited for the automated future that organizations are aspiring to achieve. The progress of digitomation is resulting in job losses across a range of industries for low- and medium-skilled workforces. The demand for less-skilled workers is falling at a rate that is concerning policymakers across the globe. At the same time, with the high rate of automation, the demand for high-skilled workers is growing. Firms are increasingly trying to attract and retain the high-skilled workforce by paying higher skill premiums. This process is making our producer identities more and more heterogeneous by increasingly setting us apart from each other in job markets, thereby widening the earning gap between the skilled and unskilled.9 The final impact of digitomation on human identity seems to be two-pronged: (1) the divergence of our producer identities: setting skill premiums apart and differentiating our earning capabilities based on our skill possession. Digitomation has made our producer identities heterogeneous— what we term the divergence of our producer identities (discussed in the last chapter), and (2) convergence of our consumer identities: by making our preference patterns similar—what we term the convergence of our buyer identities and will focus on in this chapter.